How to Calculate Consumer & Producer Surplus
Economists use the terms consumer surplus and producer surplus to illustrate the financial gains created by producers or consumers in a given market. Consumer surplus depends on the maximum price a consumer is willing to pay for a particular good. If the price of this particular good is less than the maximum price the consumer is willing to pay, the consumer gains consumer surplus. In turn, producer surplus depends on the minimum price producers are willing to sell their goods. The producer gains producer surplus when consumers are willing to pay more than the producer's minimum price.
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Instructions
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1
Locate the triangle representing consumer surplus. On a basic supply and demand graph, consumer surplus is the triangle made up of the area below the demand curve line, above the equilibrium price line, and the area to the right of the vertical axis. The vertical intercept of the demand curve on the vertical axis of the supply and demand graph shows you the maximum price that consumers are willing to pay. The minimum price consumers are willing to pay is denoted by the equilibrium price line.
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2
Use the area of a triangle formula (½ x base x height) to calculate consumer surplus. On the consumer surplus triangle you located in Step 1, find the base and the height of the triangle. The ½ is a constant number used for all your calculations. The base is the number of units consumed that corresponds with the equilibrium price along the y axis. The height is the number of vertical units between the vertical intercept and the equilibrium price. The height represents the difference between the maximum price and minimum price consumers are willing to spend.
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3
Locate the triangle representing producer surplus. As with the consumer surplus, refer to the basic supply and demand graph. The producer surplus is the triangle made up of the area above the supply line, under the equilibrium price, and to the right of the vertical axis. The vertical intercept of the supply line indicates the minimum price producers are willing to take. The maximum price producers are able to take is illustrated by the equilibrium price line.
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4
Use the formula to find the area of a triangle (1/2 x base x height) to calculate producer surplus. The ½ is a constant factor and always a part of your calculations. Like with consumer surplus, the base is the number of goods consumed at the equilibrium price along the y axis. The height of the triangle is the number of units between the equilibrium price and the vertical intercept of the supply line. This numerical value represents the difference between the equilibrium price and the minimum price producers are willing to take. Plug these numbers into the formula to find producer surplus.
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